I move amendment No. 43:
In page 50, between lines 10 and 11, to insert the following:
“(b) by inserting the following section after section 739K:
739KA.(1) In this section and section 739LC—
‘connected’ has the same meaning as in section 10, subject to the modification that references in section 10 to ‘control’ shall be read as if they were references to control within the meaning of subsection (4)
of this section;
‘deposit’ means a sum of money paid to an enterprise on terms under which it, or any part of it, may be repaid with or without interest and either on demand or at a time or in circumstances agreed by or on behalf of the person making the payment and the person to whom it is made, notwithstanding that the amount to be repaid may be to any extent linked to or determined by changes in a stock exchange index or any other financial index;
‘enterprise’ means an entity or an individual;
(a) a person (other than an individual),
(b) an investment undertaking, subject to subsection (2),
(c) a pension scheme,
(d) an offshore fund (within the meaning of section 743(1)), or
(e) any other agreement, undertaking, scheme or arrangement, whether established or created under the law of the State or of a territory other than the State,
that would, for the purposes of the Tax Acts, be regarded as—
(i) carrying on any of the activities referred to in paragraph (b), (c) or (d) of subsection (4), or
(ii) advancing amounts, making funds available or receiving interest as referred to in subsections (3) and (4) of section 739LC;
‘member’, in relation to a pension scheme, means—
(a) an employer or employee, in respect of a scheme referred to in section 774,
(b) an individual referred to in section 784(1)(a), 784A(1)(b), 784C(2) or 785(1), or
(c) a contributor, within the meaning of section 787A, in respect of a PRSA;
‘significant influence in the management of’, in relation to an entity, means the ability to participate in the financial and operating decisions of that entity.
(2) Where the entity referred to in paragraph (b) of the definition of ‘entity’ is an umbrella scheme, regard shall be had to each sub-fund of that umbrella scheme and the unit holders of that sub-fund, as if that sub-fund was an entity in its own right.
(3) For the purposes of this section and section 739LC, an enterprise shall be treated as an associate of another enterprise where—
(a) one of the 2 enterprises has control of the other enterprise, or both enterprises are under the control of the same enterprise or enterprises,
(b) one enterprise is connected with the other enterprise,
(c) those enterprises are associated within the meaning of section 739D(1)(a), where those enterprises are investment undertakings or similar entities established under the laws of a territory other than the State,
(d) one enterprise is a pension scheme and the other enterprise is a member of that scheme, or
(e) one enterprise is a scheme, similar to a pension scheme, that is established under the laws of a territory other than the State and the other enterprise is a member of that scheme.
(4) For the purposes of this section, an enterprise shall be taken to have control of an entity if one or more than one of the following conditions are satisfied:
(a) where the enterprise is an entity, and—
(i) both entities are included in the same consolidated financial statements prepared under—
(I) international accounting standards, or
(II) Irish generally accepted accounting practice,
(ii) both entities—
(I) are not included in the same consolidated financial statements, or
(II) are included in consolidated financial statements prepared under an accounting practice referred to in paragraph (a)(i)(I),
but would, if consolidated financial statements were prepared under the accounting practice referred to in paragraph (a)(i)(I), be included in the same consolidated financial statements;
(b) where that enterprise exercises, or is able to exercise or is entitled to acquire, control, whether direct or indirect, over the entity’s affairs and, in particular, but without prejudice to the generality of
(i) if such enterprise possesses or is entitled to acquire (other than in the circumstances described in section 739LC(4))—
(I) not less than 25 per cent of the—
(A) issued share capital of a company, or
(B) units of an investment undertaking,
(II) not less than 25 per cent of the voting power in the entity, or
(III) such rights as would if the whole of the profits of the entity were distributed, entitle the enterprise, directly or indirectly, to receive 25 per cent or more of the profits so distributed,
(ii) by virtue of any powers conferred by the constitution, articles of association or other document regulating that or any other entity;
(c) where the enterprise has significant influence in the management of the entity;
(d) where the enterprise holds one or both of the following securities in the entity:
(i) securities convertible directly or indirectly into shares in a company, or units in the investment undertaking, or securities carrying any right to receive units or securities of the entity;
(ii) securities under which the consideration given by the entity for the use of the principal secured—
(I) is to any extent dependent on the results of the entity’s business or any part of the entity’s business, where the entity is not an investment undertaking, or
(II) represents more than a reasonable commercial return for the use of that principal.
(5) Where 2 or more connected enterprises together satisfy the condition set out in subsection (4)(b), they shall each be taken to have control of the entity.
(6) For the purposes of subsection (4)(b), an enterprise shall be treated as entitled to acquire anything which such enterprise is entitled to acquire at a future date or will at a future date be entitled to acquire.
(7) For the purposes of subsections (4)(b) and (5), there shall be attributed to an enterprise any rights or powers of a nominee for such enterprise,that is, any rights or powers which another enterprise possesses on
such enterprise’s behalf or may be required to exercise on such enterprise’s direction or behalf.
(8) For the purposes of subsections (4)(b) and (5), there may also be attributed to any enterprise (in this subsection referred to as the ‘firstmentioned enterprise’) all the rights and powers of—
(a) any enterprise of which the first-mentioned enterprise has, or the first-mentioned enterprise and associates of the first-mentioned enterprise have, control,
(b) any 2 or more enterprises of which the first-mentioned enterprise has, or the first-mentioned enterprise and associates of the firstmentioned enterprise have, control,
(c) any associate of the first-mentioned enterprise, or
(d) any 2 or more associates of the first-mentioned enterprise,
including the rights and powers attributed to an enterprise or associate under subsection (7), but excluding those attributed to an associate
under this subsection.”,”.
I advise Deputies that I will be bringing forward a technical amendment on Report Stage to ensure that the original holder of excessive rights provision is fully reinstated to the form it held prior to this year's Finance Act. Section 29 provides for a number of amendments to the tax regime for Irish real estate funds or IREFs. Amendments Nos. 43 to 49, inclusive, make a number of changes to section 29 as published. As the amendments are quite lengthy, I will provide committee members with a longer speaking note to give as much detail as possible on the material contained in the amendments. I will take members through the speaking note, which I will circulate to members along with a number of other speaking notes tomorrow. What we are going through here is very technical. If any Deputy wants to meet my officials in advance of Report Stage regarding any questions they may have about it or issues they want to be clarified, my officials are available to them.
As the Deputies are aware, following a review of the first IREF financial statements filed earlier this year, Revenue have identified aggressive tax practices by some IREFs. As a result of this, I have moved to introduce additional anti-avoidance rules and further compliance requirements into the IREF taxation regime as part of Finance Bill 2019. A number of these measures were introduced via financial resolution on budget night.
Section 29, as published, introduces new restrictions on the interest deductions that can be taken by an IREF in arriving at the surplus available for distribution. Tax will now be payable at fund level on the excess interest. As a result of stakeholder engagement following publication of the Bill, particularly with the Department of Housing, Planning and Local Government, I am proposing a Committee Stage amendment to allow relief from the resulting tax charge for interest paid on genuine third party debt. This amendment will ensure that the provision operates as intended to address excess interest charges on related party debt without acting as a disincentive to property development using genuine, arm's length, third party funding. To ensure that this exclusion is only available for genuine third party debt, a robust and comprehensive definition of associated enterprise is being introduced in the new section 739KA contained in amendment No. 43. The robust restrictions to the relief for third party debt are further supported by an anti-avoidance measure, which provides that the relief will not be available in respect of third party debt that is used to acquire property from a connected party. There is one exception to this provision, namely, in certain circumstances where an IREF acquires property on which significant development has been carried out for the purposes of property rental.
Amendment No. 44 introduces a new provision to tighten the interest restriction rules by amending the definition of specified debt to ensure that it includes debt advanced to a partnership of which the IREF is a partner as well as debt advanced directly to the IREF itself.
Amendment No. 45 relates to the profit financing cost ratio introduced by financial resolution on budget night. It corrects a technical anomaly in the formula that occurs in situations where an IREF has a loss. It also ensures that for the purposes of the profit financing ratio, only the annual income profits are taken into account and not any realised or unrealised capital gains or losses. As the profit financing ratio formed part of the financial resolution, the appropriate method to correct these issues is to introduce a new section 739LAA, as contained in this amendment. In conjunction with this amendment to the profit financing ratio, amendment No. 45 provides for third party interest on the acquisition of a property to be included as an allowable part of the cost for the debt-to-cost limit ratio. This is in line with the normal treatment of interest as an allowable cost for capital gains tax purposes. These amendments will not compromise the financial resolution and will take effect from 1 January 2020. Amendment No. 45 also includes two provisions required to prevent any unintended consequences to the charge to tax now being at fund level in certain circumstances. The first ensures that the rate of tax levied on the IREF as a result of the new anti-avoidance measures is 20% regardless of the underlying legal form of the IREF. The second ensures that transactions with an IREF do not come within scope of the transfer pricing exemption that will apply to certain domestic transactions between entities within the scope of Irish tax.
Amendment No. 48 relates to the measure in section 29, as initiated, which proposes to transfer an existing holder of excessive rights charge from the shareholder to the fund. However, it has been determined that the provision as currently drafted would unintentionally result in an additional layer of tax and would remove the current ability for some investors to claim double tax relief in their home tax jurisdiction for Irish tax paid on their IREF profits. A broad range of stakeholders have advised that this measure would negatively impact on current property development projects, including residential housing projects. Officials have been unable to identify a method to resolve these issues in the legislation as currently drafted and, therefore, I propose to withdraw this provision from the Bill. As a result, the holder of excessive rights charge will remain at the level of the shareholder, rather than the fund.
Amendments Nos. 46, 47 and 49 provide for a number of corrective amendments that are purely technical in nature.